Royal Bank of Scotland, the 81 per cent state-owned lender, has agreed to pay LIBOR-related penalties after a report found 'serious failures in the controls and risk management systems RBS had in place'.
The group agreed to pay penalties of £87.5m, $325m, and $150m to the Financial Services Authority (FSA), Commodity Futures Trading Commission (CFTC) and Department of Justice (DOJ), respectively.
The company said it has entered into a deferred prosecution agreement in relation to one count of wire fraud relating to Swiss Franc LIBOR and one count for an antitrust violation relating to Yen
LIBOR. RBS Securities Japan has also agreed to enter a plea of guilty to one count of wire fraud relating to Yen LIBOR.
The investigations uncovered wrongdoing on the part of 21 employees, predominantly in relation to the setting of the bank's Yen and Swiss Franc LIBOR submissions.
All of the regulators concluded that RBS, as a firm, had not engaged in any 'deliberate misconduct'.
Philip Hampton, RBS Chairman, said: "The RBS board acknowledges that there were serious shortcomings in our systems and controls and also in the integrity of a small group of our employees. This is a sad day for RBS, but also an important one in continuing to put right the mistakes of the past.
"We have to fix the culture in the banking industry. The most important part of that is focusing our efforts on the needs of our customers and acting with integrity. And it also involves facing up to the bank's past failings, no matter how uncomfortable that is. That is why those responsible have left the organisation or been subject to disciplinary action.
"The board has also used all means possible to ensure the gravity of this issue is reflected in the remuneration received by employees. No one should be left in any doubt about how seriously RBS takes these failings.
"Although this wrongdoing went undetected for longer than we would have wished, in this and across all risk areas we are working hard to root out bad practices and put them right for the future. This process has no short cuts, but does have our full attention."
Main finding of investigations
The investigations found that the bank's Yen (JPY) and Swiss Franc (CHF) derivative traders sought to influence the Bank's JPY and CHF LIBOR setters in the period October 2006 to November 2010, and that the company's JPY, CHF and US dollar
money market traders did on some occasions take into consideration their own money markets books as a factor in their LIBOR submissions.
In addition, two RBS traders based in London colluded with other banks and brokers in making and receiving requests for higher and lower JPY and CHF LIBOR.
The group stressed that there are no findings that anyone (including the Bank of England, as some analysts point out) beyond individual traders and, in some instances, their immediate supervisors, was aware of, or instructed, any deliberate manipulation of submissions, nor is there any finding that RBS suppressed LIBOR submissions at the direction of senior management.
Management takes action
The company stressed that since it became aware in 2011 of improper conduct in connection with rate setting, its management has taken action to strengthen significantly the systems and controls governing its LIBOR submissions.
The company revealed that all 21 wrongdoers referred to in the regulatory findings have left the organisation or been subject to disciplinary action.
Individuals found culpable left the bank with no 2012 bonus and the company fully clawed-back any outstanding past bonus awards. Supervisors with accountability for the business but no knowledge or involvement in the wrongdoing have received zero bonuses for 2012 and a range of claw-back from prior years depending on specific findings.
John Hourican, Chief Executive of the Markets and International Banking division, to leave the bank
The group described this action as "a difficult decision", but said that while Hourican had no involvement in or knowledge of the misconduct, both he and the board felt it was "right that he leave the organisation in recognition of the management issues identified in relation to this settlement and the impact on the group's reputation".
He will leave the business after handing over his responsibilities. He will receive 12 months' notice and his other contractual entitlements, however, he will forfeit all his unvested bonus and Long Term Incentive Plan awards that are subject to claw-back.
CEO condemns wrongdoing
Stephen Hester, RBS Group Chief Executive, said: "I want to speak very clearly and on behalf of the 137,000 employees of RBS. We condemn the behaviour of the individuals who sought to influence some LIBOR currency settings at our bank from 2006-10. There is no place at RBS for such behaviour.
"We are also determined to correct the broad range of control and risk management failures that originated in RBS during the financial boom years. LIBOR manipulation is one example. This is a painstaking task undertaken carefully and diligently over five years. We know that we cannot detect and solve every problem as fast as we would like. But our commitment is absolute. We are dedicated to creating a safe and secure RBS that serves customers well and that, in the right way, creates value for those who rely on us.
"LIBOR manipulation is an extreme example of a selfish and self-serving culture that took hold in parts of the banking industry during the financial boom. We will use the lessons learned from this episode as further motivation to reject and change the vestiges of that culture. RBS is making substantial progress overall. Today's announcement is not the first and will not be the last reminder of the scale of the changes that need to be made. But our determination to clean up RBS for all is undiminished."
Financial impact 'modest', but sell nonetheless
For his part, analyst Ian Gordon at Investec points out that "any resolution of actual and/or potential civil litigation is likely to be sufficiently distant to be seen as a potential future one-off income statement issue rather than part of any nearer-term capital challenge. "We see the financial impact of LIBOR as relatively modest," he adds.
Unfortunately Investec also continues to see a very slow pace of recovery with, after five years of heavy losses, a return on equity (RoE) of 2% in 2013, 4% in 2014 and 6% in 2015. For that reason it retains a sell recommendation and an unchanged price target of 290p.